Home » The Political Reason Why Gas Prices May Rise This Summer

The Political Reason Why Gas Prices May Rise This Summer

Midwestfuelprices

We’re going to talk about Elon Musk a little today because he loves making news and we write about news. First, though, we’re going to talk about two more important topics: 1. How ethanol fuel might cause your gas prices to go up, specifically if you live in the Midwest. 2. Skoda. Then we’ll talk about Musk, I guess.

E15 Is Great If You’re A Farmer, Less If You Drive A Lot

FuelpricesmidwestI’d wager that most people in the United States reading this are putting E10 gasoline (that’s fuel with 10% ethanol) in their cars, whether they’re aware of it or not. Whether or not E10 is good or bad is not something I’m going to engage with right now.

Technically, the use of E10 violates federal limits on air pollution in the Clean Air Act due to its volatility (you can read about Reid vapor pressure here, which is how they measure volatility). E10 fuel has an ongoing waiver to allow it to be used. Whether this is for environmental or political reasons—Iowa is an important swing and primary state and produces a lot of corn, which is used to make ethanol—is a debate I’m not going to engage with, either. There are only so many hours in the day and I’m very busy lately.

E15 (fuel with 15% ethanol/85% gasoline mix) has no such permanent waiver and the amount sold has to be limited during the summer. E15 did get a temporary waiver from the Biden administration last year when the White House was trying to bring gas prices down. Now, some governors in Corn Belt states (Illinois, Iowa, Minnesota, Nebraska, South Dakota, and Wisconsin) are asking for the E10 waiver to be removed.

Wait, what? About 2,800 gas stations sell E15 but way more sell E10 and corn belt states want more E15 fuel being sold and so want to make it a more level playing field. Alternatively, Ohio Governor Mike DeWine this summer just asked for the E15 waiver to be permanent. That seems like the more obvious solution.

The EPA will probably have to do it, eventually, but they can delay it if they want. So where do the high gas prices come in? Here’s a good explanation from a Bloomberg article highlighting the tension between governors, the Biden administration, farmers, and refiners:

Refiners and pipeline operators, including Flint Hills Resources and Magellan Midstream Partners, are lobbying the administration to delay the shift until at least next year, arguing a too-fast pivot threatens short-term fuel supplies and an even higher price spike.

“Because it takes time to move from refinery to retail, refiners are generally reconfiguring and adjusting refinery production in February and March to be able to produce summer gasoline,” said Patrick Kelly, with the American Fuel and Petrochemical Manufacturers.

Ethanol supporters insist the oil industry is exaggerating the potential disruption. “These are sophisticated companies that have been operating these systems for decades” or more, said Renewable Fuels Association head Geoff Cooper. “They know how to run multiple products through these systems and how to make changes quickly.”

They go on to explain how this could do to the Midwest what California’s fuel requirements do to that state’s gas prices:

The change also could isolate the Midwest’s fuel supply from the rest of the country, much like what happens in California — historically home to the highest retail prices in the country — because of its boutique grade. That would make the Corn Belt states, which consultancy RBN Energy estimates account for 10% of total U.S. gasoline demand, more dependent on refiners in the region and create a risk of supply disruptions when facilities undergo maintenance or outages.

If I had to put money on it, the EPA will do whatever the Biden Admin thinks will lower gas prices.

Skoda Delivers 731,300 Vehicles In 2022

SkodatmdIt’s a tough year for automakers, especially those of the affordable variety. If you’re a company like the Volkswagen Group and you’ve got a handful of chips you’re going to send those chips to Bentley and Porsche where the profits are and not, necessarily, to value automakers like Skoda and Seat. Many of those are re-skinned VWs, but they look great and sell at reasonable prices in their markets.

So, it is with a heavy heart, that I report sales of Skodas worldwide dropped 16.7% from 2022 to 2023. This isn’t the worst drop and there are bright spots (Germany was only down 1.8% and India was up 128%).

If you so desire, you can read the company’s full press release right here, but I’ll take out the key part from their CEO Klaus Zellmer:

“Never before in its recent history has Škoda Auto been confronted with such extensive challenges as in the past year. Despite these difficult times, our company is making steady progress thanks to an attractive and modern model portfolio comprising e-models and ICE cars, as well as our strong, motivated team and the close cooperation with our social partner, KOVO. We’ve demonstrated resilience, a quality that is more important than ever in a fast-changing environment. With the acceleration of our e-offensive, we’re well positioned for the upcoming years and will continue to strengthen the Czech Republic as a key automotive and e-mobility hub. The market situation will remain tense in 2023, but we’re cautiously optimistic that the situation will improve in the coming months. Furthermore, our strategy is already proving successful, and our products are very well received by customers. Thus, we’re building on a very solid foundation to successfully steer Škoda through 2023, when we will introduce the new generation of our Superb and Kodiaq, among other projects.

New Superb, y’all. Get excited! I am legit excited. This isn’t even a bit. I love Skodas.

Tesla V. BYD

Byd Han TmdIf I had my druthers, I’d spend less time talking about Tesla and more time talking about BYD. And I already talk about BYD a lot! We’ve sort of created a dichotomy, as journalists and pundits are wont to do, pitting BYD against Tesla. Is that fair? They do compete, but aren’t they actually two very different companies?

There’s a column I think you should read. Patrick suggested it to me. It’s titled: Not All EVs Are Equal. Look at the Tesla-BYD Rivalry. It’s written by Anjani Trivedi and it challenges some conventional wisdom on the topic, specifically among those who lump all EV-related companies together.

It’s an extremely valid point, even if I’m not sure we do that here very often. She does a good job in this piece of pointing out the reality of the situation: Tesla is decontenting cars and slashing prices in China at the same time BYD is going upmarket with cars that can moonwalk and raising prices.

This, though, I think is the key point:

BYD and Tesla employ distinct strategies largely because they have starkly different business models. It isn’t as simple as which one can churn out more vehicles, faster. BYD started out as a battery company that now also makes and sells cars. It has secured access to heaps of raw materials required to make EVs and their batteries. It has a firm grip on the supply chain and has moved toward a more vertically integrated model while nailing the technology. Despite Elon Musk’s chat about owning lithium mines, Tesla is still reliant on its long and deep network of suppliers in China. It gets powerpacks from the world’s largest maker, Contemporary Amperex Technology Co., and is tapping BYD as well.

The world is complex and accepting that is a good thing.

Elon Musk Might Not Be The Richest Man In The World Ever Again

Elon Musk Richest ManElon Musk famously lost $200 billion but, like, as long as he’s still got more than $340,500, does it really matter?

The way he got rich, with SpaceX and a complex compensation package from Tesla, is also the reason why he may never do it again, at least according to this Bloomberg analysis. (Side note: we’re Bloomberg-heavy this morning!)

In buying Twitter, Musk cornered himself and likely can’t play showman to raise the value of those companies in a way that’ll be as beneficial to him.

From the analysis I linked to above:

Musk was given an option on Tesla stock and did everything he could to drive up its value, said Stephen Diamond, a law professor at Santa Clara University who teaches securities law and advises institutional investors on corporate governance. What directors didn’t see coming was their unpredictable CEO cashing in some $40 billion worth of shares, much of which went to overpaying for another company.

“The board has made millions, and he has made billions,” Diamond said of Musk. “But there was always a risk that he would exploit this in the short term and leave the company hanging.”

At this point, the bedrock of Musk’s fortune is his 42% ownership of Space Exploration Technologies Corp., the rocket launch company he founded in 2002, before he got involved at Tesla. The value of the closely held company continues to climb, most recently raising $750 million at a $137 billion valuation.

But, crucially, Musk likely can’t leverage SpaceX, nor his Boring Co. and Neuralink, as aggressively as he can publicly traded Tesla. His margin loans turbocharged his ascent up the wealth rankings by helping him raise cash to fund his other expensive ventures. His initial plan to buy Twitter involved using the debt too, but he restructured the financing package in May after market volatility sent Tesla shares falling.

The irony of the Tesla compensation deal is that it was supposed to keep Musk’s singular “genius” focused on Tesla and instead it helped him get rich enough to buy a distracting toy. It’s the same reason we mostly pay Jason in Subway coupons; that way he doesn’t buy a Tatra and fuck off forever.

The Flush

Ethanol fuel. Lemme have it. What do you think?

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Photos: Tesla, Hagerty UK, Skoda BYD

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90 Responses

  1. Regarding Skoda and them saying “Never before in its recent history has Škoda Auto been confronted with such extensive challenges as in the past year.”

    I have to disagree with that statement. I’m pretty sure Skoda went through much bigger challenges leading up to and during WW2 when they got taken over by the Nazis and then subsequently got repeatedly bombed by the allies
    https://en.wikipedia.org/wiki/%C5%A0koda_Auto#World_War_II

    1. Well those two companies have very little in common these days. A bit like Auto Union and Audi.

      Anyho, but they surely have problems with supply line. Year a go they delivered 3 Octavias in Finland and year before that they were like top3 most sold vehicle. Also my Enyaq 4×4 (ID4 with more trunk space and less touchy things) delivery moved about a year. It went from about 5 months to 17 months.

      First it was because the wire harnesses were made in ukraine. Then there was sourcing problems for awd components.

  2. I don’t think I fully understand the E10 vs. E15 shift causing price disruptions from the refinery side. My understanding is that the refinery delivers straight gasoline and the ethanol is blended at the local distributor just before it is loaded in the truck for delivery to the gas station. Are they implying that 88 octane E15 uses different base gasoline than 87 octane E10?
    I would have expected a shift in fuel policy like that to come more from the ethanol supply/demand side, rather than the gasoline.

    1. I worked for a pipeline company in the early 90s and this was how it was done (at that place at that time). I even worked on a project where we installed a small ethanol tank for blending as the trucks were loaded. To my knowledge there was nothing special about the base gasoline used for blending

  3. I wanted to go read that Washington Post article you linked but ironically it says “democracy dies in darkness” while also physically darkening the article and making me sign up for a free account. Yeah um no.

  4. Whenever we talk about gas prices we always omit the most important part: whether something will ACTUALLY impact supply and demand is part of the story, but whether certain people THINK something MIGHT have an effect on the supply chain is also a critical factor.

    Welcome to the world post Commodity Futures Modernization Act of 2000, which set the stage for commodity investors (i.e. middlemen whose main interest is in creating volatility) who have no intention of taking delivery of the commodity to speculate on critical commodities like petroleum.

    So when you talk about this seemingly innocuous (except to our fuel systems) and boring change, what really matters is if enough speculators think other speculators or consumers of the product might get upset about it and rightly or wrongly decide it will impact prices. It sounds complicated but it really boils down to this: complete and total bullshit can impact the price of gas if it sounds scary enough.

  5. I’ve posted this in reply to others but it might deserve its own entry.

    https://www.pure-gas.org/

    You can search by state or open a map to find your closest E0 pump.

    Also, for power equipment use, you can find ethanol-free fuel sold in stores by the quart, gallon or 5 gallon bucket, 4-cycle or 50:1 and 40:1 premix. I use this for my snowblower and it works great. We sell this in our NAPA store, I’m sure you should be able to find it locally. VP fuels markets it as well as a brand called TruFuel which is a Royal Purple product.

    1. I have a station close to my house that sells non-ethanol gas. Love it. My two daily drivers, mine and my wife’s 2016 Mazdas, don’t care if they get E10. I’m wary of E15, but whatever. However, my toy/weekend/summer car, a 1990 Pontiac Sunbird, hates E10. People tell me it is a placebo effect and all in my head, but I know the car. It runs rougher, uses more gas, and its intermittent “check engine light” illuminates more frequently when I get gas at a normal station vs. when I go to the station that sells non-ethanol gas.

  6. I’m starting to come around on Elon buying Twitter. After all, the internet is the place to strike it rich. Am I Right? Even Sara is making ninety two bucks an hour from home. Why put all that effort into making cars and spaceships?

    1. $100/hr for 40 hours/week is $208,000. Musk spent $44,000,000,000. He better get started with Sara right away, because it be over 211,000 years before he breaks even.

  7. I have no issue with E10 or E15 in my modern stuff, but it really bothers me when I can’t get E0 for the old stuff, especially for stuff that sits a lot. The crusty mess you’ll find in your carb will give you nightmares. Remember the old days when you could get E10 89 octane fuel for about the same price as E0 87 Octane? Would be nice to still have that choice. Thanks corn lobby.

    1. https://www.pure-gas.org/ is your friend.

      Also, for power equipment use, you can find ethanol-free fuel sold in stores by the quart, gallon or 5 gallon bucket, 4-cycle or 50:1 and 40:1 premix. I use this for my snowblower and it works great. We sell this in our NAPA store, I’m sure you should be able to find it locally. VP fuels markets it as well as a brand called TruFuel which is a Royal Purple product.

    2. My Coleman mini bike needs the carb pulled and cleaned because of the shitty gas and the fact it sits for a few weeks at a time. Damn thing isn’t even a year old and it runs like shit already.

  8. I specifically go out of my way to buy non ethanol fuel whenever I can, luckily for me there’s a place with 91 octane non ethanol fuel at the pump not far from me which is now my go to gas station.

    Ethanol fuel is good for V2 Rockets and for cleaning stuff (in my case mostly the highest proof everclear I can get) but besides that it’s not good. Also new studies have shown that the production for ethanol for fuel pollutes more than just burning straight gasoline, and at least burning gasoline doesn’t perpetuate monocrop agriculture and with that the removal of nutrients from the topsoil which kills the ability for crops to be grown on that land for a long while which is very likely to happen in my lifetime.

    1. The Feds’ *own studies* show we should be using switchgrass, not corn, in order to have a net reduction in emissions. But there’s no switchgrass lobby.

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